Tuesday, 29 July 2014

Fracking & A Rare Example of Political Will

Fracking has the hallmarks of an issue best left until after the election, like Blair studiously did with Nuclear before 2005. Swampy doesn't vote, so let him fester in his damp hole and get mistaken for a badger: but actual middle class people are known to take fright at the prospect of a drilling rig in their back yard. In the likely scheme of any UK shale developments what practical difference does a year make? I'm as big an enthusiast on shale as anyone, and a great believer in Political Will: and still my answer would be: not a jot. The gas ain't going anywhere; and there's a good chance there may be nothing to show for any exploration conducted between now and next May. But there could be some messy headlines.

Nonetheless, the government has got religion on this, and has been plugging on rather purposefully for a good few months. Do they actually fancy running battles with Greens down country lanes ? (I'm quite sure PC Plod does ...) Is this part of the great Crosby playbook ?

For what its worth, I'd say the shale policy is being pursued fairly intelligently (everything is relative, mind) with a 50:50 chance of positive political outcome. The most recent announcement (full steam ahead but careful of the National Parks) is sensibly cast. There's a section of the population that likes the smack of firm government; energy security-of-supply is a well-known refuge for political scoundrels (and little Putin is certainly playing his part); and there's another part of the population that generally knuckles down to the inevitable, so long as it is mildly sugar-coated - which this one is. Even the Guardian's critique is qualified, and resigned to the inevitable.I can also tell you (from the front line, first hand) that the drilling companies have taken the signal and are intent on playing hardball: not Henry Ford-style, but with serious determination, based on the understanding the government has their backs. Local councils will generally play along with a determined developer, particularly when there's that bit of sugar-coating on offer; so persistence will win out. And the academics - who some assume are greens to a man - are in fact pragmatists to a man, always on the look-out for sponsored research opportunities. They will largely be onside too, with a whole new industry in prospect. Yes, 95% go with whichever way the wind is blowing, and the government has decided to blow. Of course, they're showing the same steely resolve with nuclear and all manner of 'renewables' lunacy too, so it may be viewed as all of a piece*. Energy policy, misguided or otherwise, seems to have that effect on people. You don't get forgiven for letting the lights go on the blink.ND _____________________ *Funnily enough, all of this - the fracking and the faffing - is undermined by falling gas prices, happening across Europe and Asia without any help from UK shale !

8 comments:

I don't have time for in depth comment today - but interesting stuff is the finance. For example the US, poster child for fracking's 'benefits', returns and debt levels are the the clincher for such a capital intensive industry with large debt loads and rapidly diminishing production returns, which of course is also linked to gas price.

Please note, not "fracking", but "the controversial process, fracking" (copyright the BBC).

Were I told - you have to have a fracking rig in your back garden, or a wind turbine, there would be no contest. Fracking rig any day.

BBC are so conflicted on this. With regard to CAGW, they pretty much insist that anyone opposing it must be a qualified scientist. This is for something that doesn't even deserve the name of a "theory" - it is a hypothesis which real world data tells us is wrong, and badly wrong.

Fracking however, the BBC are happy to fill their studios with all sorts of totally unqualified activists from NGOs like Greenpeace and Enemies of the Poor (formerly "Friends of the Earth")

MotPO - it's worse than that: the whole of government energy policy since Milipede was energy secretary has been based on the notion that gas prices will rise forever

the 'contracts for difference' awarded to nuclear, biomass, onshore and offshore wind generators are settled at the difference between electricity market price and the 'strike price'. The strikes are variously between twice the current market price (onshore wind, nuclear) and three times (offshore wind) AND they are index-linked (to inflation, not market)

electricity market price will be a function of marginal cost - a subtle blend of gas price and the marginal cost of wind (= zero)

as market price drifts drown (Germany is showing the way) and inflation drifts up, the payments to be made under the CfDs get bigger and bigger ... and of course they will all be passed through to electricity bills

although Germany's subsidy mechanisms are different in detail the effect is the same: ever lower market price, ever higher price paid by consumer